Grassroot Institute Testimony on Public-Private Partnerships

On April 8th, the Senate Committee on Judiciary and Labor as well as the Senate Committee on Ways and Means heard public testimony on HB 1075, which would authorize the Maui Hospital System to enter into a public-private partnership for the betterment of its health services. Below are the oral comments made by Grassroot Institute President/CEO Keli’i Akina, Ph.D. during the Committee hearing.

Good afternoon Chairs Keith-Agaron and Tokuda, and Senators. Thank you for hearing us. I’m Keli’i Akina, President of the Grassroot Institute of Hawaii, an independent public policy research think tank. We’d like to offer some comments.

You do have our written comments, so I’ll depart from them. I appreciate the Solomon-like task that you have: to navigate between the interests of our workers in the unions as well as those of a private [enterprise.]  And I appreciate that.

As a public policy think tank, we’re part of a network of independent think tanks in fifty states. We don’t represent the unions. We don’t represent private businesses. One of the things that we do is develop the list of best practices on how to run municipalities, counties, and state governments. And one of the emerging best practices now – in the late 20th century and early 21st century – is public-private partnerships with respect to hospitals.

All over the country, this is taking place. Orange County, for example, divested itself (in terms of the government) of 28 hospitals—which are now not maintained by or owned by the county. But their privatization has led to tremendous financial health as part of the recovery of Orange County [from bankruptcy].

By the way, it was said to you earlier—and this is a mistake—that public-private partnerships for hospitals take place only in poor regions. Orange County is one of the wealthiest regions per capita in the country, and public-private partnerships are taking place in areas of all income levels.

In Louisiana, $52 million a year was saved [by the state hospital system] by going into public-private partnership. The public hospital system in Concord, Texas saved $104 million. California’s Sequoia Health Care System is saving $30 million. The research is in, and we’ve given you the links to that. There’s no question about it. One of the best practices for fiscal health in a state and for meeting the needs of the people is public-private partnerships for hospitals.

I’d live to leave you with a couple of other thoughts that come from research. As early as 2009, an independent study by Stroudwater Associates (which you’re familiar with) said that the HHSC is “in a financially perilous condition.” You had the Chairman of the Board of HHSC here earlier and she quoted this study, saying that it actually supported their position. Let me read to you, very specifically, the conclusion of the Stroudwater Study:

“The first essential change calls for a conversion of HHSC from a public benefit corporation to a private nonprofit 501c3.”

That was back in 2009. Now, the most recent audit, in 2014, which Gov. Ige sent to the Legislature in January, said that we’re dealing with major problems in the system, including a shortage of physicians. [The audit] cited two problems in particular. Number One: the physician shortage is caused because the HHSC cannot offer competitive salaries [with the private sector]. Secondly, the [staff] salaries and benefits that are paid by HHSC constitute 63% of its total operating expenses. But in the market, it needs to be [no higher than] 50% in order for a hospital to be viable. We’re not dealing with something that just costs a lot of money. We’re dealing with something that—even if you made a short term fix—cannot be fixed in the long run.

It was mentioned earlier that unions might be open to a furlough or reducing pay. That would not be fair to the union workers. And even if that was done, it would not solve the long-term problem.

We leave you with additional studies, but the evidence is overwhelming. Public-private partnerships are a way to do two things. First, they improve the fiscal health of the state. And that’s something we need to do, especially in light of our unfunded liabilities. Secondly, it’s a way that we can solve an immediate crisis, which is to meet the needs of people who need hospital services.

I thank you for your time and your attention.

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